Activities and Financial Position of Greencore Group Plc - Case Study Example

Greencore Group plc Task Introduction Greencore group plc, initially a sugar factory in Ireland, is a company that specializes in the production of ready –to –take food. The company is headquartered in Dublin, Ireland and has spread its roots into various international markets such as the United Kingdom and the United States. The company provides convenience food stuff to various retail stores, manufacturers and customers. Greencore Group plc has achieved a global recognition to be among the leading in the industry. This report presents analyses of the company’s activities and financial position using ratios, DuPont model and trend performance. The following are the ratios considered for the analysis: return on equity, gross profit margin, net profit margin, current ratio, inventory turnover period, trade payable turnover period, gearing ratio and price earnings ratio as is included below. Greencore’s activities In the United Kingdom, Greencore Group plc manufactures various types of sandwiches, baguettes, salads and sushi, which contain high nutritional value. The company has six convenience food facilities in the U.K. The facilities are located in Spalding, Bow, Manton Wood, Park Royal, Northampton and Crosby. The company also manages a radial network intended to aid distribution activities in the United Kingdom (Greencore Group: annual report 2013). The entrance of the company into the U.S. market was characterized by two major acquisitions with the first one settled in the financial year 2008 and the second, financial year 2010. In additional, the company acquired two more companies in a contract that was settled in the financial year 2012. The series of acquisitions has seen the number of ready-to-go food facilities increase to six. The facilities are located in five states as follows: Virginia, Florida, Utah, Illinois, and Massachusetts. The company main activity in the U.S. is the manufacturing of various sandwiches and other convenience food stuff (Greencore Group: annual report 2013). Greencore Group also engages in the prepared meals business. It prepares pasta sauces, soup, quiche, and chilled ready meals for supply to various U.K. retailers. Under this activity, the company manufactures meals with private labels strictly for customers under controlled diet. This is beneficial for individuals with health concerns such as the diabetics and weight-observing customers. The facilities providing such brands are located in Bristol, Kiveton, Wisbech, Warrington and Consett. The company has strongly established the brands in the mentioned markets (Greencore Group: annual report 2013). Last, Greencore Group plc deals in ambient grocery and Frozen Foodstuffs. Through this activity, major U.K. retailers are supplied with table sauces, table pickle, and ambient cooking sauces. The company has distinguished this product from those of the competitors through private label manufacturing. The facility that manufactures this brand is located in Selby whereas; Leeds is the location of the facility that manufactures Frozen foods. Last, the company also bakes cakes and manufactures various kinds of desserts (Greencore Group: annual report 2013). The auditor’s report Greencore Group plc has followed the regulation set by both the IFRS and the U.K GAAP regarding the preparation of the financial statements. All the required financial statements have been provided. However, the auditor’s report claims possible misstatements which pose great risks to the company. The areas of possible misstatement are on pension disclosure, the disclosures of intangible assets among others. Therefore, the auditors report is significant for the reason that it analyses the suitability of the company’s accounting approach to valuing various items in the financial statement and propose an appropriate approach if need be. As a result, the auditor’s reports are intended to improve the accuracy of the contents of the financial statements (Greencore Group: annual report 2013). The ratio calculation Ratio 2013 2012 % Change Ind. Mean ROE 0.2846 0.1777 60.21% 19% Gross profit margin 29.99% 30.10% -0.38% 10% Net profit margin 5.99% 3.07% 95.47% 3% Current ratio 0.458 0.540 -15.16% 1.7 Inventory turnover period 23 24 -5.46% 50 Payables’ turnover period 132 127 3.74% 20 Gearing ratio 0.44202 0.5901 -25.09% 4% P/E ratio 1003.45 624.84 60.59% 9.0 x 2013 2012 % Change Net Income * 71,739.00 35,623.00 101.38% Equity 252,047.00 200,519.00 25.70% Gross Profit 358,954.00 349,735.00 2.64% Revenue (ex,VAT)* 1,197,099.00 1,161,930.00 3.03% Current Assets 176,140.00 180,446.00 -2.39% Current Liabilities 384,805.00 334,443.00 15.06% Inventory 53,144.00 54,474.00 -2.44% Cost of Sales 838,145.00 812,195.00 3.20% Trade Payables * 303,141.00 283,155.00 7.06% Long-term Debt 199,665.00 288,647.00 -30.83% Capital Employed 451,712.00 489,166.00 -7.66% EPS 0.15 0.13 13.28% Price 145.50 79.98 81.92% Assets 1,010,860.00 1,018,938.00 -0.79% Operating Profit 59,679.00 46,536.00 28.24% Asset Turnover 1.18 1.14 3.85% Sales 1,197,099 1,161,930 Assets 1,010,860 1,018,938 Net Profit Margin 5.99% 3.07% 95.47% Net Income * 71,739 35,623 Sales 1,197,099 1,161,930 Equity Multiplier 4.01 5.08 -21.07% Assets 1,010,860 1,018,938 Equity 252,047 200,519 ROE 0.2846 0.1777 60.21% Comments on ratios and percentage changes Return on equity indicates the return on every pound of equity capital contributed by the shareholders. Concerning Greencore Group plc, the return on equity for financial year 2012 and 2013 were 0.1777 and 0.2846 respectively, indicating an increase of 60.21%. The increase is associated with an increase in net income in the year 2013 by 101.38% as compared to the previous year. The interpretation of the ratio for FY 2013 implies that every pound of shareholders’ equity generated £ 0.2846 towards the company’s net profit (Innocent, Mary & Matthew 2013). Operating profit margin- the ratio shows the level of a company’s profitability after meeting the operational and costs related to sales. It also shows the capability of a company to service the cost of capital and pay taxes. A higher operating profit margin signifies a higher capability to pay interest and taxes. Concerning Greencore Group, ratios for 2012 and 2013 were 30.10% and 29.99%, representing a decrease of 0.38%. The ratio interpretation for FY 2013 implies that 29.99% of sales during that year were operating profit, whereas the remaining 70.01% of sales were consumed by expenses (Innocent, Mary & Matthew 2013). Net profit margin- this ratio shows how well a company manages its operating expenses. The higher the ratio, the lower the operating expenses of a company. Concerning Greencore Group, the ratios for the FY 2012 and 2013 are 3.07% and 5.99%, respectively, indicating an increase of 3%. The ratio interpretation for FY 2013 implies that only 5.99% of sales were net profit. This shows a low level of the company’s operating efficiency. Current ratio measures the ability of a business to meet its current obligations using the current assets. Concerning Greencore Group, the current ratio for FY 2012 and 2013 are 0.540 and 0.458 respectively representing a decrease of 15.16%. In both years, the company was not capable of meeting all the current obligations (Innocent, Mary & Matthew 2013). The inventory turnover period indicates the number of times the stocks are sold within a financial period. Concerning Greencore Group plc, the turnover ratios for FY 2012 and 2013 are 24 and 23, representing a decrease of 5.46%. The inventory turnover decreased in the year 2013 but the revenue levels increased by double figures. Payables turnover period shows the frequency with which credit purchases were made by the company during a financial year. Concerning Green Group plc, the ratio for financial year 2012 and 2013 are 127 times and 132 times, respectively, representing an increase of 3.74% (Innocent, Mary & Matthew 2013). The gearing ratio indicates the proportion of debt in the company’s capital structure. Concerning the Greencore Group, the gearing ratio for FY 2012 and 2013 are 0.5901 and 0.44202 respectively, showing a decrease of 25.09%. The interpretation to FY 2013 implies that for, every pound of equity, there was £ 0.44202. According to the ratio, the company’s leverage level is low. The Price earning ratio shows the payback period for MPS by the earnings per share. A high price earnings ratio indicates either a decrease in earnings per share or an increase in the market price per share. Concerning Greencore Group, P/E ratio for 2012 and 2013 are 624.84 and 1003.45 respectively, representing an increase by 60.59% (Innocent, Mary & Matthew 2013). The percentage changes in sales, operating profit and share price between financial year 2012 and 2013 using 2012 as base year are as follows: sales increased in the financial year 2013 by 3.03%. Other items with direct associations to revenues such as the costs of sales also increased in 2013. Second, the operating profit increased, in the financial year 2013, by 28.24%. The increase was due to an increase in sales during the same period. Last, market price per share increased, in the financial year 2013, by 81.92% (Innocent, Mary & Matthew 2013). DuPont analysis DuPont model is used to determine the company’s potential to increase return to its shareholders. The model has three factors (Profit margin, Total asset turnover, and financial leverage) used to assess the return on equity. The DuPont model determines ROE based on the following criterion: (profit margin * total asset turnover * financial leverage) (Almazari 2012). The table below shows DuPont model factors and the ROE for Greencore Group plc. 2013 2012 Profit margin 0.05993 0.03066 Total asset turnover 1.1842 1.14033 Financial leverage 4.011 5.0815 ROE 0.2847 0.1777 From the table above, ROE increased in 2013. Considering the DuPont factors in the table above, both the profit margin and total asset turnover increased, but financial leverage decreased in the year 2013. Since ROE increased, it is concluded that the increase is attributed to an increase in both the profit margin and total asset turnover. Therefore, both the profit margin and total asset turnover have played a key role in the company’s increase in profitability (Almazari 2012). In conclusion, Greencore Group plc manufactures and distributes convenience foodstuffs such as salads, sandwiches, cakes among others, which are distributed to various retail stores. Some of the company’s products are custom-made-made. The auditor’s report on the company’s disclosure has highlighted areas characterized by possible misstatement such as the disclosures on intangible assets among others. The ratio analysis indicates a high profitability level of the company. However, the current ratio proves that the company experienced liquidity problems in FY 2012 and 2013. Nevertheless, the company’s gearing level is low. Last, the DuPont analysis indicates that both the profit margin and total asset turnover played in increasing the company’s profitability. List of References Almazari, A.A. 2012, "Financial Performance Analysis of the Jordanian Arab Bank by Using the DuPont System of Financial Analysis", International Journal of Economics and Finance, vol. 4, no. 4, pp. 86-94. Greencore Group: annual report 2013, Downloaded 24 November 2014, Blackboard. Innocent, E.C., Mary, O.I. & Matthew, O.M. 2013, "Financial Ratio Analysis as a Determinant of Profitability in Nigerian Pharmaceutical Industry", International Journal of Business and Management, vol. 8, no. 8, pp. 107-117. Read More